Dealing with Disruption

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Dealing with Disruption
Professor Rebecca Henderson MIT Sloan School of
Management Phone [phone], Email
Rhenders_at_mit.edu,http//www.mit.edu/people/rhende
rs/home.html
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Disruptions create problems forestablished firms
Performance
Maturity
Disruption
Takeoff
Ferment
Time
3
and may lead to firm failure
4
But they also create major opportunity

• Corning glass
• Cookware to optical fiber
• HP
• Instrumentation to computers
• IBM
• Mainframes to PCs to Services
• Merck
• Patent medicines to genetics genomics

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Outline

• Why disruptions are so difficult
• Strategic problems
• Competence traps
• What can be done
• A tradeoff between coordination and
  entrepreneurial energy
• Managing with multiple levers

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Why are disruptions so challenging?
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Strategic problems

• What is a disruption, anyway?
• Genuine uncertainty
• Many disruptions ultimately fail
• A fear of cannibalization
• The new product/service competes directly with
  the old and aggressive response may make the
  problem worse
• Margin erosion
• Margins on new initiatives are often lower than
  those available from the existing business
• Time horizons
• New initiatives typically take many years to come
  to fruition, and dont offer much immediate
  relief to the bottom line

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Competencies evolve over time,creating
competency traps
Performance
Maturity
Disruption
Takeoff
Ferment
Time
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Change challenges every aspect of an
organization
Leadership Strategy
Structure Process
Incentives
Culture Mental Models
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The Organizational Challenge
Successful disruptive innovation unites
entrepreneurial insight with effective
coordination
Entrepreneurial Drive, Freedom from the old
ways
Startups
B as U
Control Coordination
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What can be done?
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Choose a structure that fits the firms strategic
positioning
Entrepreneurial Drive, Freedom from the old
ways
Joint venture/ alliance
Internal venture
Build inside existing unit
Control Coordination
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Manage it using every lever that you have
Entrepreneurial Drive, Freedom from the old
ways
Acquire/ Partner
?
Joint venture/ alliance
Internal venture
Build inside existing unit
Build inside existing units
Control Coordination
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What can be done?

• Lead
• Generate energy
• Build an ambidextrous senior team
• Communicate
• Make decisions

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Generate Energy

• Position the discontinuity as an urgent threat
• Flirt with bankruptcy
• Make vivid the idea that the firm might flirt
  with bankruptcy
• Position the discontinuity as an opportunity
• Generate some small successes build enthusiasm
  and infect the organization
• Leap boldly into the future

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Build an Ambidextrous Senior Team

• Ambidextrous senior teams must manage
• both more mature, operationally focused
  businesses
• and higher growth, emerging businesses
• High performing senior teams show
• High conflict, high respect decision making
  capabilities
• High levels of trust and truth telling
• The ability to manage divergent incentive systems
  and career paths
• Coupled with processes that support the divergent
  management of quite different business units
• E.g. Resource allocation processes that allow for
  different time horizons, milestones, rates of
  return

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Communicate the Vision
Performance
Time
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Make Decisions
100
Average Value-Added Time on Engineering Tasks
80
60
40
20
0
6
5
4
3
1
2
Number of Projects per Engineer
Source IBM Development Efficiency Study
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What can be done?

• Lead
• Structure
• Implement appropriately
• Choose the right people
• Manage linkages

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Choosing a structure implies choosing problems
Effective implementation of the right structure
process is critical
Entrepreneurial Drive, Freedom from the old
ways
?
Acquire/ Partner
Joint venture/ alliance
Internal venture
Build inside existing unit
Build inside existing units
Control Coordination
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What can be done?

• Lead
• Structure
• Incent
• Explain just whats in this for me?
• Manage the balance between
• Individual outcomes and team/firm outcomes
• Objective and subjective measures

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The Incentive problem is an inherently difficult
one
Entrepreneurial Drive, Freedom from the old
ways
Startups
B as U
Control Coordination
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Using high powered incentives may reduce
coordination
Entrepreneurial Drive, Freedom from the old
ways
?
Acquire/ Partner
Joint venture/ alliance
Internal venture
Build inside existing unit
Build inside existing units
Control Coordination
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What can be done?

• Lead
• Structure
• Incent
• Transform the culture
• Build on core values
• Practice thinking in new ways
• Manage from the heart

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Summary
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Successful firms

• Lead
• Structure
• Incent
• Transform the culture

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A speculationSuccessful firms will increasingly
managecompetence as an evolving strategic asset
Performance
Effort